Question

Why does the Net Present Value change depending on discount rate being used?

Why does the Net Present Value change depending on discount rate being used?

Homework Answers

Answer #1

Net present value is the sum of present value of cash which is spent or received.

Each such future cash inflow and outflow is discounted at a given interest rate to measure or sum the present time value of money.

The equation for calculating NPV is FV/(1+i)^n

The discount rate for calculating the NPV is a key input and it is the interest rate which is used to discount the future cash flows to yield their present value and  a higher discount rate will lower the value of NPV so,as the discount rate changes,the value of NPV changes.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
what does present value really tell us ? if the discount rate is higher why would...
what does present value really tell us ? if the discount rate is higher why would the pv be lower ?
Why isn’t accounting net income used in the net present value and internal rate of return...
Why isn’t accounting net income used in the net present value and internal rate of return methods of making capital budgeting decisions?
The i thermal rate of return is: The discount rate that makes the net present value...
The i thermal rate of return is: The discount rate that makes the net present value of a project equal to the initial cash outlay. Equivalent to the discount rate that makes the net present value equal to one. Tedious to compute without the use of either a Financial calculator or a computer. Highly dependent upon the current interest rates offered in the marketplace. A better methodology than net present value when dealing with unconventional cash flows.
The internal rate of return is the discount rate at which the net present value is...
The internal rate of return is the discount rate at which the net present value is Select one: a. positive. b. There is no relationship between these two concepts. c. equal to zero. d. negative.
The net present value of a project is $260000 at the discount rate of 14.0 percent....
The net present value of a project is $260000 at the discount rate of 14.0 percent. Which of the following could be the IRR of this project? a)11.6 b)12.29 c)11.6 d)11.96 e)16.6
does depreciation of machinery & salvage value be used in calculating net present value profit and...
does depreciation of machinery & salvage value be used in calculating net present value profit and loss and cash flow statement
if a rights offer is used as a means of funding a positive net present value...
if a rights offer is used as a means of funding a positive net present value project, then shareholders should expect the price of their share to: -remain constant as the value of the project will be offset by the issuance of the new shares -decrease due to the additional shares being offered -change but the directions of that change cannot be predicted -change in direct relation to the change in the book value per share -increase due to the...
What discount rate is most appropriate for net present value calculations of large-scale projects? Of small...
What discount rate is most appropriate for net present value calculations of large-scale projects? Of small projects? Of the quantity of inventories to hold?
Why is the rate used to discount FCFF different from the rate used to discount FCFE?
Why is the rate used to discount FCFF different from the rate used to discount FCFE?
Net Present Value Calculation Initial Investment Discount Rate Net Benefit Year 1 Net Benefit Year 2...
Net Present Value Calculation Initial Investment Discount Rate Net Benefit Year 1 Net Benefit Year 2 New Benefit Year 3 Present Value Is this a worthwhile investment? 100,000 .06 50,000 50,000 50,000 100,000 .12 50,000 50,000 50,000 100.000 .24 50,000 50,000 50,000 200,000 .06 80,000 80,000 80,000 200,000 .36 100,000 100,000 100,000 500,000 .36 200,000 350,000 500,000 500,000 .36 500,00 350,000 200,000
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT